If you want to retire rich, you really need an IRA. With just two weeks left to fund an IRA for the 2011 tax year, you don't have any time to lose. But once you've opened an account and made your first money contribution, what happens next -- deciding how to invest your IRA money -- is crucial to your long-term performance.
Over the next two weeks, you'll hear from some of our top Motley Fool contributors about their picks for stocks that make great candidates for IRA investors. Later in this article, I'll give you a sneak peek on some of the areas they're focusing on. But first, let's do a quick review of why IRAs are so important for your retirement investing success.
The reason that my Foolish colleagues and I harp on IRAs so often is that they're tailor-made for people trying to save for retirement. In particular, they fight back against one of the biggest challenges that retirement investors have to overcome: the impact of taxes on your returns.
Year in and year out, investors lose much of their gains to taxation. Up to 35% of the interest income you receive from bank CDs, Treasury bonds, and many other fixed-income investments is lost to the IRS. And although current tax law provides for a lower 15% maximum tax rate on long-term capital gains as well as dividends on many stocks, those preferential rates are slated to expire at the end of 2012. With no guarantee that favorable rates will come back, dividend investors in particular could be looking at a huge tax hike in 2013 and beyond.
But IRAs shelter you from those taxes, giving you control over your tax bill. Traditional IRAs are tax-deferred, with you paying tax only when you take withdrawals from your account. Roth IRAs are even better from a tax perspective, with their income and gains being completely tax-free. Those are advantages you simply can't go without in today's uncertain tax environment.
Show me some stocks!
So which stocks are right for your IRA? Our Fool contributors have come up with an extensive list of promising candidates from a number of interesting places. Here are just a few:
- Fool retirement writer Chuck Saletta made his pick from the world of mortgage REITs, where American Capital Agency (NAS: AGNC) and Chimera Investment (NYS: CIM) have profited for years from big disparities between short- and long-term interest rates. Like those two mREITs, Chuck's pick has already seen a drop in its dividend payouts, but it still carries a yield well into the double digits. Chuck sees his pick surviving even if rates rise, thanks to a strong management team and a diversified portfolio.
- Technology has been a hot area lately. Fool tech writer Anders Bylund features a stock whose products have found their way into some of the most popular electronic devices on the market. With Apple (NAS: AAPL) and Samsung relying on this company to help them make their smartphones, Anders' pick is well-poised for long-term success.
- Fool pharma and biotech expert Brian Orelli's pick shows how technology has played an increasingly vital role in a number of industries. While MAKO Surgical (NAS: MAKO) is an up-and-coming innovator seeking to revolutionize the way doctors perform hip and knee replacement surgery on our ever-aging population, Brian's pick is a more mature pioneer in health-care technology, with both a track record of past success and plenty of growth in its future.
- Fool macro specialist Alex Dumortier goes to the world of exchange-traded funds for his IRA pick. Dividend ETF Vanguard Dividend Appreciation (NYS: VIG) features decent-yielding stocks with growing payouts, but Alex prefers to go with an ETF that maximizes current yield -- a key component for those in or nearing retirement.
That's just a sample of the picks you'll discover in this series over the next two weeks. Stay tuned as we reveal a new pick every day leading up to this year's IRA contribution deadline.
Read about all of our picks from our perfect IRA series in these articles:
- Why Annaly Capital Is Right for Your IRA
- Why Corning Is Right for Your IRA
- Why Travelers Is Right for Your IRA
- Why Waste Management Is Right for Your IRA
- Why Veolia Is Right for Your IRA
- Why Intel Is Right for Your IRA
- Why Seaspan Is Right for Your IRA
- Why Intuitive Surgical Is Right for Your IRA
- Why Vanguard High Dividend Yield ETF Is Right for Your IRA
Want more great retirement picks? Check out the Fool's special report: "3 Stocks That Will Help You Retire Rich." It's free but only available for a limited time, so click here to get your copy today.
At the time this article was published Fool contributor Dan Caplinger has his IRA exactly where he wants it. You can follow him on Twitter here. He owns shares of Vanguard Dividend Appreciation. The Motley Fool owns shares of MAKO Surgical and Apple. Motley Fool newsletter services have recommended buying shares of MAKO Surgical and Apple, as well as creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy is perfect for you.
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